VMware’s Quarterly Sales That Exceed Analysts’ Estimates

July 23 (Bloomberg) -- VMware Inc., the biggest maker of
software that lets computers run different operating systems,
said second-quarter sales rose 17 percent as customers renewed
multiyear agreements and added new programs to them.

Sales climbed to $1.46 billion from $1.24 billion a year
earlier, VMware said in a statement yesterday. Profit excluding
certain items was 81 cents a share. Analysts had projected
profit of 79 cents and sales of $1.44 billion, according to the
average of estimates compiled by Bloomberg.

“Ultimately, I think VMware is in a great situation,”
said Daniel Ives, an analyst at FBR Capital Markets & Co.,
before the results were announced. “It’s about a good second
quarter, a healthy outlook for the second half and investors
buying into the growth story for 2015.”

VMware customers are re-signing multiyear deals for
virtualization software that can help them trim corporate
network costs and at the same time are adding on VMware’s tools
for managing those setups, said Abhey Lamba, an analyst at
Mizuho Securities USA Inc. with a buy rating on the stock, in a
note. Palo Alto, California-based VMware is majority-owned by
EMC Corp.

Net income fell 32 percent to $167 million, or 38 cents a
share, from $245 million, or 57 cents, a year earlier, the
company said.

The shares rose 1.5 percent to $97.47 at 10:07 a.m. in New
York. They had climbed 7 percent this year through yesterday.

Going Forward

VMware forecast third-quarter sales of $1.48 billion to
$1.52 billion, in line with analysts’ average estimate of $1.5
billion, according to data compiled by Bloomberg. The company
anticipates total 2014 revenue of $5.96 billion to $6.08
billion, compared with analysts’ average estimate of $6.03
billion.

The company said that excluding certain costs, operating
margin will be 29 percent, the same as in the second quarter.
That’s down from 31 percent in the first quarter and 35.6
percent in the last quarter of 2013. VMware forecast 2014
operating margin of 31 percent.

“The overall strength of our forecast and what we’re
seeing is the opportunity to continue to grow the company
throughout the rest of 2014,” Chief Financial Officer Jonathan
Chadwick said in an interview.

Potential Spinoff?

Elliott Management Corp., an activist hedge fund based in
New York, recently amassed a more than $1 billion stake in EMC
and is pushing the world’s biggest storage computer maker to
spin off VMware.

Elliott has held talks for several months with potential
buyers of EMC without the VMware piece, a person with knowledge
of Elliott’s campaign has said. EMC would be an attractive
acquisition target for technology giants including Oracle Corp.,
International Business Machines Corp., Cisco Systems Inc., or
Hewlett-Packard Co., the person has said.

In the event of a spinoff, VMware will not change too much,
said Ives.

“VMware is really run like its own company,” he said.
“The bark would be worse than the bite in how that would change
the business, the inner-workings.”